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Three forces that will transform management

By Gary Hamel

26 February 2009

The technology of management—the tools and techniques we use to mobilize human effort—is likely to change dramatically over the next few years. Modern management was invented a century ago to solve one overriding problem: how to organize work at scale with ever-increasing productivity. This problem is still important, but organizations now confront a new set of challenges, which cannot be solved with Industrial Age management practices and structures.

Today, the overriding problem for every organization is how to change, deeply and continually, and at an accelerating pace. We live in a world where change is “shaken, not stirred.” Yet in most organizations, practices and structures reflexively favor the status quo over change and renewal. We see entire industries—for example, pharmaceuticals, music, advertising, and publishing—where the incumbents are struggling to invent their way out of slowly dying business models.

The barriers that once protected large companies from the winds of creative destruction are crumbling. The result: hypercompetition and relentless pressure on margins. In this environment, the returns on “incrementalism” are going down while the premium on innovation is rapidly increasing. In most organizations, innovation is still mostly an afterthought. It’s a project, an initiative, or a function, but it’s not an activity that involves everyone, every day.

The need to adapt and innovate will require organizations to better use their human capital. For organizations to succeed in today’s “creative economy,” they need employees who bring more than their diligence and expertise to work: employees must also bring their imagination and passion. Again, there’s much work to be done here. Global surveys show that fewer than 20 percent of employees—and in some countries as few as 2 or 3 percent—are highly engaged in their work. Most people are just not emotionally or intellectually committed to what they do on the job. Perhaps companies could afford that when most employees were just expected to follow the rules, but today this lack of engagement is competitively untenable.

Unless organizations in the developed world want to join the race to the bottom, they must find a management model that encourages people to bring the very best of themselves to work everyday. For all these reasons tomorrow’s business leaders must create companies that are more adaptable, innovative, and inspiring than the bureaucratic, top-down organizations that predominate today.

When you look back at the history of management, you find that it was the management pioneers that became the 20th century’s industrial giants: GE brought management discipline to science and helped to create the world’s first R&D labs. P&G developed methods for creating value around brands—assets that didn’t even appear on the balance sheet. In this new century, I’m confident that bold management innovators will be the winners.

In addition, I believe there’s a good chance that the technology of management will change as radically in the next few decades as it did in the early part of the last century. Three things will drive this new management revolution. First, as I described earlier, companies today face a set of new and inescapable challenges that lie outside the performance envelope of management as usual. The second driving force is the Internet, which has spawned a vast array of new tools for managing collaboration. In the past, nothing could be done at scale without a lot of bureaucratic structures. Now thousands of people can collaborate around the world online with little in the way of formal hierarchy or management structures. Suppose, for a moment, that ten years ago someone had surveyed the top 100 executives in each of the Fortune 500 companies—that’s 50,000 business leaders—and asked them if they could imagine a time when a disparate army of volunteers from across the world, with no formal control processes, no budgets, and no real funding, could create one of the most complex of all products: a computer operating system. I doubt that one executive out of a thousand would have said, “Sure, this will happen.” Yet the Linux operating system was developed in precisely this way. So we should be asking ourselves, what are the potential management breakthroughs that we can scarcely imagine?

These new Web-based tools will allow hierarchies to form around natural leaders rather than beneath the individuals who have been given formal, hierarchical appointments. They will democratize the workplace and give everyone the chance to help create strategy and offer advice on critical issues. This won’t happen overnight, but organizations will eventually figure out how to use these new tools, just as those early management pioneers learned how to use the telegraph and then the telephone to better manage large-scale organizations.

The values and attitudes of the Millennials now entering the work force make up the third challenge that will compel organizations to retool their legacy management models. If you spent your adolescence creating, collaborating, and learning on the Web, you’ve developed some sensibilities that will be very hard to change once you enter the work force. One of these is the belief that all ideas should compete on a level playing field. The twentysomethings who take this as a point of faith won’t want to work in organizations where a senior executive’s point of view gets an extra measure of credibility simply because he or she sits higher up in the hierarchy.

This new generation also believes that all information should be accessible. The ethos is to share information freely, not to dole it out on a need-to-know basis, as management often did in the past.

What’s more, this new generation believes that people should be measured on the basis of their contributions, not their credentials. When you post something on YouTube or write a blog, nobody asks, “Did you go to film school?” “Do you have a journalism degree?” People ask, “Was it funny?” “Was it incisive?” So any company that hopes to hire the best and the brightest will have to confront the need to dramatically change how they manage and how they organize, because the value system found in most organizations today is antithetical to the value systems that drive collaboration on the Web.

These three factors—inescapable challenges that defy conventional management wisdom, new social technologies that allow human beings to accomplish great things without the weight of bureaucracy, and a new generation of employees who come to work preloaded with antibureaucracy values—are going to force a fundamental rethink of how we lead, manage, and organize. Already you can see harbingers of the revolution to come: if your company isn’t on the reinvention curve, it’s going to be at a serious disadvantage. Just as organizations spent huge amounts of energy over the past decade reinventing their operating models—their logistics, supply chains, and customer support—they must now commit themselves to reengineering their management models.

Historically, the diffusion rate for new management ideas has been pretty slow. The principles of Total Quality Management, for instance, were first applied in a few Japanese companies after World War II, but it wasn’t until the 1980s that they finally went mainstream. I’d like to believe that we can change a bit faster this time. But there will be resistance. Executives have worked hard for the privileges they enjoy in the current system and won’t be eager to abandon them.

The new management pioneers may come from Brazil, China, India, and Mexico—and from other parts of the world where the Western management model is not yet thoroughly entrenched. Young companies are often filled with equally young employees who have little to unlearn. If I had to make a bet, I’d wager that tomorrow’s most progressive management innovators won’t come from the Fortune 500.

Comment [26]

Agree? Disagree? Let us know what you think. Please include your full name with your comment. Comments may be edited.

I’ve thrown a few verbal rocks in my time, but it yields very little. Mr. Hamel is simply trying to boil the soup down to the core essence of what is required for all of us to be aware and adapt so that some semblance of sustainability of useful goods and services will permit all of us to make a living and better the world at the same time.

I hate to say it, but it is true that the words (language) we use to build new business models don’t seem to fit what is needed. For instance the terms of supervision, manager, foreman, upper and lower management, etc., do not describe the collaborative future that is required.

Maybe that is why it “sounds” like the same old tune when in fact it is not. On the other hand, perhaps this human need to adapt slowly despite the rate of technological and cultural change is a built in fail-safe mechanism so that we don’t try to fly without wings!

I have to believe that Gertrude Stein has observed it most correctly when she said:

There is no answer
There has never been an answer
There will never be an answer
That’s the answer!
(or something close to that.)

Nothing can replace action. Experimentation is the key. Remember Tom Peter’s trying to get us all to experiment in back rooms with ad hoc teams in the ’80s – he read the need for the future quite accurately.

So it is not just one, two, three or four things that will ‘get the job done’, but hundreds of things…and it will get done!

Perhaps Gary could help us determine our strategic intent so that we can set some goals and execute some supporting actions to take us where we need to go…

Posted 18 November 2009, 15:28 by Bill Becker
Excellent observation and interpretation of the young netizens which might influence the way we think. Also the fact is every organisation strives to achieve innovation in whatever form and structure they are in today. For being able to change fast, the most essential element is to have an open architecture in its value chain. The HR function though a support function in most of the organizations should be absolutely not influenced by business managers. 360 degree appraisal is a key to ensuring that ideas and information flow freely within the organisation. It would be much easier for new organisations to bring out the best in their employees than matured companies. Job roles should be assigned looking at an employee’s interest area and not merely on past experience. Top management should realize that when the market changes to a different format, earlier experience is as good as obsolete technology from which you can learn a lot but is not necessarily the best step forward.

Posted 15 October 2009, 07:20 by Sumantra Roy
Excellent !!! The “new enterprise” as I call it is a network of highly engaged individuals or groups of individuals that may constitute the most successful organizations in the future – actually organism is probably better than organization. However it will be quite challenging to build the first of such “new enterprises” as many potential customers may require an organization they used to deal with: a big company. Only time will tell how this part of the business shift evolves.

Let me share some vision for a structure where innovative leaders may create a company in the following way:
1) A new product idea based on identified needs.
2) Developing a prototype with some connected organizations (not employees), picking the best talents out there.
3) Giving the product to the market for tests and feedback. Crowd based product evaluation and vetting. The crowd becomes the best product managers.
4) Refining the product with the development teams and further feedback cycles. The users are testers and the Q+A team. The primary benefits to them: A lower cost product – but more importantly the product they want!
5) With the maturity of the product, identifying business partners who want to introduce the product to their customers, friends, networks – some may be as commercially oriented as manufacturers reps, yet with all their energy and enthusiasm some may be just friends and contacts in the social networks. In this very model there is no employed sales force.
6) Then further broadening the market through the social web by providing platforms for the early adopters and advocates who like what they see and spread the word. In this model there is no marketing department, no marketing employees. Maybe one person helping orchestrate the social platforms and discussions.
7) Like in many cases today, production is done by outsourced production companies. Smaller more flexible units may emerge to build parts in better quality with more motivated talents.
8) Management is the new challenge. Managing such a company requires not only a new way of thinking but an understanding of the changing buying behavior, the shifts in our society and the rapidly growing desire for more personal recognition and freedom.
9) Such a company shrinks to a nucleus of maybe a 2-3 and later on a dozen people. A traditional business equivalent in size may have 100 times more employees.
10) Innovation is now part of the core fabric of such a company, not business process automation, sales, marketing… The new enterprise is actually “just” an innovator not a producer or seller or provider.

I am actually building such a product with such a company: XeeSM

Axel
http://xeesm.com/AxelS

Posted 20 September 2009, 21:07 by Axel Schultze
Excellent article. I totally agree that managers/leaders of today need to be innovative and have an abundance of creativity and energy to take this rappidly chaging landscape of organisational challanges to the next level.

Posted 14 July 2009, 15:17 by MELVIN
good

Posted 26 June 2009, 00:56 by cb
Dear Leaders,

Our future is determined by what we believe and do. Every one of our beliefs generates behavior, and every behavior has a consequence. Ultimately we become what we believe and do every day.

We live in an impatient world. The business world has trained us to run the 100m dash, we sprint from goal to goal but have no sense of purpose and that is exactly a life driven by temptations such as the quest for power and immediate gratification. In reality we are just running in circles because we are slaves to short term goals, living life from quarter to quarter, where success is measured in term of tangible results such as profit & loss, market share, revenue growth, speed to market without regard to sustainability. These results only have a real meaning and are sustainable when they possess a clear moral compass and sense of mission. I believe that following emotional intelligence’s plan offer the dynamic foundation needed to build a capacity for market responsiveness today’s business world demands without sacrificing the moral center important to building sustainable results.

Investment returns have caused many to question their investment philosophy. Some consider the real issue is that global investors are playing with risk and return as they were playing with the monopoly game. They are remodeling their investment strategy, grapping from the collapse business opportunities at attractive valuation, while other investors are considering M&A operations to better strengthen their portfolios. On the other hand recent financial market chaos around the world has created economic downturns that are having a severe impact on corporate business. Consequently executive leaders have, again, decided to go through restructuring plans, adopting most of the time dramatic strategic decisions to face the issue such as massive jobs suppression.

However does the vast majority of global investors and corporate question the essence of this collapse? I doubt!

Time for restructuration or aggressive buying of vulnerable companies are not remedies. It is time to engage into reflection and consider purpose driven investment and mission. Restructuring or buying companies without a purpose is like running the wrong way.

What is the purpose of your company? What purpose do you serve and to what end? For whom? For what purpose? While winning is important, It should be a result of doing what is right. Shareholders profits and long-term growth should be the result of a mission, not the mission itself.

People want to find genuine meaning in their work, to believe that they are working for a higher purpose, to believe that they can make a difference in the life of others, and this can only be achieved when we fulfill a purpose driven mission. If a person has a clear direction and a real reason to serve, then that person is more dependable and responsive to meet, solve, and exceed customer’s expectations.

To grow stronger over time in the midst of external pressure is the leadership model to adopt, the one that uses time and pressure to yield wisdom, growth in character, and maximize, in every single thing, productivity. Successful leaders are those who deal with challenges meaningfully. While traditional organizations value success in term of achievement, fame, recognition and wealth, emotional intelligent organizations value success in term of significance driven by calling rather than ego that truly makes them slaves. Service organizations are rocks, people who serve for a purpose are stars and they have a duty to evangelize. They feel that how well employees serve depends on how they are committed to a common path, motivated, respected and trained. It is not just what they are doing, but what they are becoming with the process that gives them their distinct value.

In the midst of a pressured and demanding world the deliverance is to serve as leaders to help others. Like diamonds, servant leaders brilliantly reflect God’s nature in all circumstances and shine brightly in the toughest of times. Money is just a result out of many others, how to create meaning and purpose is the key to organizations success not a performance culture.

Only organizations prepared for a deep introspection, teamed up with leaders that embrace emotional intelligence to bring value where there is none, will live a life of significance.
The best way to predict the future is to create it. May organizations be inspired and led by leaders who do with purpose, they will collect far more than they expect.

Posted 18 June 2009, 08:13 by Elie Chalouhi
I consider that behind any future successful organization the three “magical” ingredients are: the courage to invest in innovation (meaning suitable competences, accompanied by flexible framework for tacit knowledge interchange); the ability to inspire genuine confidence to all employees; and the ability to narrow till zero the gap between the value proposition and the very offered product/ service.

Posted 26 May 2009, 13:46 by Ovidiu Slavoiu
Dear McKinsey: What Matters

The main force that will transform management is Personal Integrity. No more. No less.

The things that Mr. Hamel described are external factors that any human being will need to be aware and considered before making an appropriate response. Hopefully the responses will yield good and excellent results.

However, NOTHING will happen IF the person in question has NO personal INTEGRITY.

The ‘net’ generation of employees can think what they like. But if the leader is NOT able to accept that it is ok to be challenged by the young and, sometimes ignorant or incoherent, he will not change even if he is aware of the different expectations of the ‘net’ generation.

Many of the other factors mentioned by Mr. Hamel will suffer the same fate.

So, for me, the most critical task is to imbue integrity into our educational and values system.

Personal integrity in my opinion, will include: respecting self and others (so one is willing and able to listen to diverse voices and ideas); have a sense of shame when your compensation package is 100x the lowest productive worker in your company (so that we will not try to hide behind the veil of: but we must pay for talents!); be committed to sustainable growth by not expected exponential growth from your team and telling them: ‘I don’t care how you do it but just do it or I will find someone who can…’!; etc…

I think you get my gist.

Transforming management starts with transforming the manager and leader himself first!! Agreed? ;-)

Best regards
LU Keehong Mr.

Posted 19 May 2009, 06:59 by LU Keehong
I am really glad to see that the points about Western mindset and ethics have been raised.

Very few people have the courage to challenge and shift their “personal success models”. I don’t think this is unique to top mgmt though reinforcement through past successes probably makes it even harder for this group to shift.

Until a significant minority show this courage in established companies / economies, we won’t see the shift and the newly developing economies will have an edge as they have less baggage.

Ethics is a more dangerous / challenging area in my view. So many practices have become legitimized under the guise of pragmatism and competitive mindset that many people don;t see the ethical minefield until it erupts in an Enron or the current crisis.

So reinvigorating more stringent ethical standards can be a powerful catalyst in its own right.

Posted 29 April 2009, 07:12 by Ashish
I find nothing new in Mr Hamel’s piece. He uses the same tired language and idea’s. Until we innovate-innovation and learn to learn nothing else really matters. I find this piece looking in the rear view mirror- although I doubt anybody will agree with me.

Posted 28 April 2009, 18:01 by steven Weiss

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